Terrifying stats show how many traders have no idea what real interest rates look like

Here is a
terrifying set of statistics from Bloomberg if you're an
investor over the age of 30. They describe how clueless the
current set of City and Wall Street traders are going to be when
the US and European central banks finally start raising interest
rates:

30% of traders are so young
they have NEVER experienced anything other than zero interest
rates.

66% of traders have no adult
memory of the dot-com crash of 2000.

Only 43% of traders are old
enough to remember the 2000 dot-com crash and the 2007 credit
crisis — the two most significant economic cycles of the last
15 years.

Here is what that looks like in a chart, as tweeted by
Bloomberg's Joe Weisenthal:

For those above a certain age,
the current interest rate environment is an anomaly. Zero
interest rates are an emergency measure. The kind of extreme act
that only happens in a worst-case scenario, when a central bank
needs to rescue an economy that can't otherwise function unless
the cost of obtaining cash is negligible.

Yet we've been living with those central bank fire-alarm bells
ringing permanently, at zero, for the better part of a decade.
The US Fed hasn't enacted an interest rate raise
since 2006.

The fear is that the current generation of traders — average age
30, according to
Emolument.com — think this emergency is normal.
They can't hear the fire-alarm ringing. To them, it's just
silence. They have no idea — beyond business school textbooks —
what higher interest rates look and feel like.

That's not to say that you can't learn from the mistakes of the
past but analysing academic theory is a vastly different
experience from living and working through a period of financial
turmoil.

Those who were working during the time of the ill-fated hedge
fund Long-Term Capital Management, which used to routinely
produce high annual double digit returns but then lost £3 billion
($4.6 billion) in around four months following the 1997 Asian
financial crisis, are a lot more gun shy when it comes to risk
taking.

Interest rates affect everything.

They set the cost of borrowing money. They broadly
sets bond yields and credit prices, and — via a knock-on effect —
stock prices, too.

Any investment has to return more money than you could earn
simply by keeping your cash in the bank. At zero percent,
virtually any investment has a greater return than cash deposits.
But once rates tick upwards through 1%, 2%, 3% and on up to 5%
(where they were 10 years ago) then stocks that can't grow at 5%
a year are a waste of money. And companies — tech startups, etc.
— that have profit rates of less than 5% are a waste of
investment cash.

So when rates move upward, which they inevitably will, there will
be a massive global reallocation of cash.

It will be wrenching and it will affect everyone.

But folks in The City and on Wall Street have never seen this
happen before.

Bloomberg quotes Yousef Abbasi, a global market strategist
at JonesTrading Institutional Services LLC, who is looking
forward to when Yellen, Carney and Draghi turn off the cheap-cash
faucet:

“I’m very excited about it,” said the 32-year-old, who began his
current position in February 2011. “The macro environment has
gotten so seemingly stuck in the mud that there are times I sit
at my desk wondering what could actually shake things up.”

Very excited!

It will indeed be "exciting." Here is an example of how exciting
it can be. In 2000, when interest rates were at about 6%,
the Nasdaq lost 80% of its
value in 31 months, Bloomberg notes. Here is what that looked
like, in case you're one of the 30% who have never seen it
before: